- Middle East tensions raise oil prices.
- Iran’s involvement in Gaza.
- Global oil supply at risk.
Amid concerns that the situation in Israel and Gaza could impede Middle Eastern oil production, Oil prices has increased.
The international benchmark, Brent crude, increased by $2.25 per barrel to $86.83, while prices in the United States also rose.
Although neither Israel nor the Palestinian territories are energy producers, the Middle East provides nearly one-third of the world’s oil supply.
The Israeli attack by Hamas represented the most significant escalation between the two sides in decades.
The attacks were condemned by Western nations. A representative of Hamas, a Palestinian militant organisation, confirmed that Iran, one of the greatest oil producers in the world, provided direct support for the operation.
Reuters reported that Iran denied involvement in the attack at a United Nations Security Council meeting in New York on Sunday. However, President Ebrahim Raisi of Iran has endorsed the assault.
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Israel commanded Chevron, a major American energy company, to cease production at the Tamar natural gas field, located near the northern coast of the country and vulnerable to rocket fire from the Gaza Strip, on Monday.
Israel’s energy ministry, which has previously shut down the field during times of unrest, stated that alternative fuel sources were sufficient to satisfy the country’s energy requirements.
Leviathan, the largest offshore gas reservoir in Israel, continues to function normally, according to Chevron.
Global oil prices have increased, according to energy analyst Saul Kavonic, “due to the possibility of a more extensive fire that could spread to nearby major oil-producing nations such as Iran and Saudi Arabia.”
The price of West Texas Intermediate crude, the benchmark for the United States, increased by $2.50 per barrel to $85.30 on Monday morning.
“If the conflict envelops Iran, which has been accused of supporting the Hamas attacks, up to 3% of global oil supply is at risk,” Mr. Kavonic stated.
Caroline Bain, chief commodities economist at Capital Economics, stated on the BBC’s Today programme that despite US sanctions, Iran has increased crude production throughout the course of this year.
“The US seems to have turned a blind eye to a steady increase in Iranian production, that… is going to be more difficult for the US to ignore going forward from here,” according to her.
Overall, Ms. Bain stated that “that should support higher prices” and that Capital Economics anticipated that oil demand would surpass supply in the last three months of the year.
A fifth of the world’s supply, according to Mr. Kavonic, would be “held hostage” if the vital oil trade route through the Strait of Hormuz were to be disrupted.
The Strait of Hormuz is vital to Gulf oil producers, whose economies depend on gas and oil.
James Cheo of HSBC bank suggests that the unpredictability of future events in the coming days may influence investors’ preference for buying the dollar and US Treasury bonds during periods of crisis.
The central bank of Israel announced on Monday that it would sell up to $30 billion worth of foreign currency in an effort to support the country’s currency, the shekel, which has fallen significantly, and to calm markets.
“At this juncture, a grain of anxiety is present. Mr. Cheo further stated, “[Investors] desire a little more clarity, specifically regarding economic data and geopolitical uncertainty-related developments.”
Oil prices surged after Russia’s invasion of Ukraine in February 2022, surpassing $120 per barrel in June of the same year.
Since May of this year, when they briefly returned to just above $70 per barrel, they have risen consistently as producers have attempted to restrain output in order to support the market.
A significant oil producer, Saudi Arabia, announced that it would reduce output by one million barrels per day in July.
Additional states comprising Opec+, a consortium of oil-producing nations, reached a similar consensus to sustain production reductions with the aim of reinforcing declining prices.
Opec+ controls approximately forty percent of the world’s crude oil, and its decisions can significantly affect oil prices.
